Liberum upgrades McColl's to 'buy'

Analysts at Liberum upgraded corner store operator McColl's Retail Group from 'hold' to 'buy' on Friday, citing some "positive signs" in the group's most recent update.

Liberum said McColl's "deserves credit" for the stabilisation achieved in 2019 and its ability to deliver on promises set out at the the time of the firm's interim results.

"The strategy is now more focused, and while it is early days, we are encouraged by some green shoots in H2," said the broker.

The analysts also said they weren't concerned by McColl's dividend suspension and stated the move was "sensible", while work continues to restore balance sheet health.

While Liberum noted that balance sheet health remained "a key risk to watch", the analysts said: "The shares have been harshly punished and we think the risks are now more than factored into the low valuation, which may re-ignite talk around McColl's as an M&A target."

Dividend aside, Liberum said it saw "several signs of encouragement" in the group's preliminary results, with recent trading moving into positive like-for-like territory despite the severe weather in the past couple of weeks.

Its adjusted full-year 2020 underlying earnings estimates increased marginally, based on a slightly more optimistic gross margin improvement. It also noted that McColl's net debt profile should fall quicker than previously, reflecting the dividend suspension and the group's imminent sale of its head office for £7.3m.